What is Delegated Proof of Stake (DPoS)?
Cryptocurrency projects are designed to be decentralized, they do not have any central control. This is one of the arguments that centralized governments have against cryptocurrencies in general. However, just because there is no central control, it doesn’t mean there is no way to ensure that no one corrupts the network.
For instance, someone or a group of persons can decide that they want to reverse a transaction or deny that a certain transaction took place on the network. In order to ensure that such does not happen, every crypto project has a way of ensuring transactions are verified by a certain method and are not manipulated. This method is known as a consensus mechanism.
There are many different consensus mechanisms used by different projects. For instance, Bitcoin forks such as Bitcoin Cash and Litecoin use Proof of Work. This is a method of consensus in which miners (those who verify transactions) have to solve complex mathematical problems and in return get rewarded with new Bitcoins known as block rewards. This is how new Bitcoins get into circulation.
Another very famous method that is widely used is Proof of Stake. This is a consensus mechanism in which a certain number of participants known as validators stake their digital assets to secure the network. The idea is that validators have significant amounts of the network’s digital assets and so will ensure nothing bad happens to the network as their assets are at stake. This is the consensus mechanism that Ethereum is adopting after deciding to abandon Proof of Work.
There are several variations of the Proof of Stake mechanism, one of which is Delegated Proof of Stake. In this article, we will examine this consensus mechanism for you to understand what it is, how it works and how it is different from other consensus mechanisms.
Delegated Proof of Stake
As stated earlier, Delegated Proof of Stake is a consensus mechanism used by some crypto projects. It was developed to secure a blockchain by representing transactions within it. Unlike typical Proof of Stake, it uses voting and election to secure the blockchain using representatives
The mechanism was developed by an American software developer Daniel Larimer who is also the founder of Bitshares and Steemit. DPoS was invented as an alternative to the Proof-of-Work consensus that Bitcoin still uses today, because of the energy consumption associated with it. Larimer’s crypto project Bitshares was the first to implement the DPoS consensus mechanism. It is also an option to increase scalability of the blockchain by ensuring that more transactions are confirmed faster as less computing power is required compared to PoW.
How DPoS works
The primary idea behind DPoS is voting and election of representatives. Active members of the community vote for representatives when they stake their digital assets. These are called stakeholders and while the staked assets remain their properties, they delegate the role of securing the network to elected witnesses and delegates, hence the name Delegated Proof of Stake. The elected representatives achieve consensus during generation and validation of new blocks.
The voting power each stakeholder possesses depends on the number of coins they hold. While the voting system varies from one project to another, delegates typically have to present a proposal when asking for votes and they share the rewards they get with those who elected them. If a delegate does not work properly, the voting system kicks him out and replaces him with another.
Both PoS and DPoS involve staking of coins, but DPoS has a more democratic system in which validators are elected rather than just given the role based on how large their stake is as is the case with PoS. It is also more scalable than PoS and because validators are voted, they tend to be more trustworthy as the voters can easily take them out if they are not transparent or reliable.
Witnesses who distinguish themselves in this role are rewarded with a percentage of the transaction fees of every validated block. Some crypto projects validate the right to block transactions. They however hardly use such power as it could ruin their reputation and they can also be voted out as a result.
Advantages of DPoS
DPoS has a number of advantages over the other dominant consensus algorithms, i.e PoW and PoS. Because of the more democratic system of securing the network, the following advantages are easily noticeable:
- Faster transactions: Transactions on DPoS blockchains are generally faster than on PoW and PoS. This is due to the deterministic selection of block producers.
- Higher scalability: DPoS blockchains attain more scalability than PoW and PoS because they do not require high tech equipment for computer power, so almost anyone can operate a node if elected.
- Higher security: Double spend attacks are less likely to occur on DPoS than on PoW or PoS because the delegates are careful to be very transparent.
Disadvantages of DPoS
DPoS has several advantages over PoW and PoS, but that doesn’t mean it does not have its own shortcomings. The following are some of the problems associated with DPoS.
- Delegates can easily organize an attack: While delegates in this system have incentive to behave, they can also very easily organize an attack on the network. This is because there is only a small number of delegates compared to a system like PoW. They can therefore more easily plan and execute an attack after getting trust from the community.
- Bias towards the rich: DPoS is structured such that those with bigger stakes have more voting authority. This means few can have the power to choose more delegates than others and so stand a chance to get more rewards from such delegates.